Top Menu

Handsets in holding pattern, hitting Sony Ericsson, Palm

Mar 22, 2009 8:00pm

The handset sector is holding its breath, waiting for a string of events over the coming weeks, some more definite than others. The shipment of the Palm Pre, the appearance of the new iPhone, Android phones from Samsung are all expected around mid-year. They are viewed as events that will get the phone market moving again. In the meantime, the waiting game is proving tough for some suppliers, notably Palm and Sony Ericsson.

Amid rumours that the Sony Ericsson joint venture is on the point of breaking apart, the company has issued a brief statement warning that its net sales and pre-tax profit for the first quarter continue to be negatively affected by poor consumer demand and clear-out of inventory in retail and distribution channels.

Sony Ericsson's estimates are now that Q1 will see 22 million unit sales with an average selling price of â‚¬120 ($163), down on â‚¬125 a year earlier, and gross margin will be flat or slightly down sequentially and year-on-year, partly because of increased investment in R&D as a percentage of sales.

The firm is also predicting a loss in the range of â‚¬340 million to â‚¬390 million ($459 million to $526 million), excluding restructuring charges of about â‚¬10 million to â‚¬20 million - significantly worse than its fourth quarter 2007 deficit of â‚¬261 million ($353 million). Results for the seasonally weak Q1 will be announced on April 23.

Internal problems at Sony Ericsson make it a less significant bellwether for the rest of the sector than Nokia or Samsung, but its downbeat statement will still send out negative signals that Q1 could be tougher than expected.

The specific reasons given by president Dick Komiyama were a particularly sharp decline in the midrange replacement segment, where Sony Ericsson has its strongest market share, and a shortage of some components. 'For the last year, Sony Ericsson has been focused on expanding the breadth of its portfolio and developing its presence in new markets to lessen its historic reliance on the European high end sector for growth. This strategy will continue, and our objective remains to become a top three player globally by 2011,' he said.

Palm is in an even worse position, as it waits for the as yet unspecified shipment date for its make-or-break Pre handset and Webs software platform. As Forbes.com puts it: 'Palm might as well take a long vacation until it gets its new Pre phone on the market. Just about nobody is buying its older model phones, as its third quarter results made clear.'

Palm had already released the figures earlier this month, so the 71% drop in Q3 revenue to $90.6 million, and loss of $98 million (compared to $57 million a year before) came as no surprise, but its shares still slid 5.1% to $7.32. Analysts said the results were 'not of much concern' since they revolve around products that are near the end of life, or will be marginalized by the Pre, but this highlights the urgency for Palm to get the smartphone out of the door, and for it to perform strongly. Analysts are looking for half a million Pre sales in the second half of 2009 from Sprint alone.

CEO Ed Colligan said the company was 'well positioned to launch the Pre' and promised a broad roadmap of smartphones and an application ecosystem built on WebOS, which will 'not be a one-product platform'.

Though of course, Apple has shown the potential for a one-product platform (two, with the iPod Touch), and may steal some of Palm's thunder by releasing a new iPhone at around the same time. Exclusive UK carrier O2 has been slashing prices, apparently in readiness for a new model, and US exclusive partner AT&T is now offering iPhone 3G without a contract, also suggesting it is trying to clear its shelves (though they will come with a high price tag of $599 for an 8Gb model or $699 for a 16Gb).